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Sun, Jan 18, 2009 - Page 10 News List

British PM urges banks to own up to bad assets

BE CLEAR Brown’s government is expected to unveil a series of corporate lending guarantees that will free up activity in sectors including housing and car financing

AFP , LONDON

British Prime Minister Gordon Brown told British banks yesterday they must own up to the extent of their bad assets amid more reports his government could launch a fresh bailout of the struggling sector.

In an interview with the Financial Times, Brown reportedly did not rule out the possibility that banks could get a further injection of taxpayers’ money after big names including Royal Bank of Scotland were bailed out last year.

His comments came as shares in RBS and Barclays plunged on Friday on jitters across the sector as US giant Citigroup announced an US$8.29 billion fourth quarter loss and Bank of America received a US$20 billion state bailout.

Shares in Barclays, which did not receive a state bailout, were down nearly 25 percent, their lowest level since 1993.

“One of the necessary elements for the next stage is for people to have a clear understanding that bad assets have been written off,” Brown told the Financial Times.

“We have got to be clear that where we have got clearly bad assets, I expect them to be dealt with,” he said.

Officials are reportedly working on plans to buy banks’ bad assets — exacerbated by some consumers and businesses’ inability to pay their debts as the credit crunch bites — and place them in a “bad bank,” or to underwrite the toxic assets.

The industry reportedly has some £200 billion (US$295 billion) in bad assets.

The Daily Telegraph reported yesterday that Britain would use nationalized bank Northern Rock as a “good bank” to help increase lending to individuals and business struggling for credit.

Brown’s government is expected to unveil a series of corporate lending guarantees this week to free up activity in areas including housing and car finance, the Financial Times said.

“It’s the same problem of access to the banks and to funding,” Brown told the paper. “Obviously, the sooner the corporate bond market moves more effectively, the better.”

Ahead of the G20 summit which will be in London in April, Brown also warned against a retreat into “financial isolationism” and stressed the need for international cooperation to revive the credit markets.

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